1. Trust in providers is critical as demographics shift.

The silent generation and baby boomer generations will continue to represent half or more of the total net worth of U.S. households a decade from now. Older generations will continue to drive earnings, but Gen X and millennials will increasingly drive earnings multiples. Forty-nine percent of survey participants listed trust as either their most important or second most important consideration when selecting a provider of financial planning and investment services. Thirty-eight percent cited cost and 22% transparency. Fidelity, Charles Schwab and Vanguard dominated the “most trusted provider” responses across all three age groups in the survey as well as across three different levels of investable assets — less than $100,000, $100,000 to $1 million and more than $1 million.
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2. Financial wellness offerings will proliferate, thanks to technology.

William Blair says it believes in Envestnet’s financial wellness vision, though advisor inertia will be a hurdle to adoption. The vision’s centerpiece is the client’s financial plan, which will be updated in real time using data aggregation capabilities — look for big improvements as banks introduce APIs. After the financial plan is in place, fiduciary overlay services related to investments, insurance, credit and retirement can be implemented. This will make planning more seamless by eliminating the gap between making recommendations and taking action. Feedback will be available to end clients through engaging digital performance reports.
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3. The wealth management and tech spaces will continue to consolidate.

Human financial advisors will remain relevant. Among 185 survey respondents who use a financial advisor, 87% said there was an 80% or greater probability they would be doing so in five years. Two risks will assert themselves five-plus years from now: decumulation as clients age (a bigger issue for mass-affluent-focused broker-dealers and RIAs than firms focused on rich clients); and investors who grow up using digital investing platforms deciding to stick with those platforms. Other trends: RIA channel consolidation will continue. Subscription fees will become more common. The number of BDs will shrink and those remaining will become more RIA-like. Banking and investing will continue to come together. Financial advisors will outsource more of their investing function.
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4. Active ETFs and direct indexing will thrive.

Despite immense pressure on the traditional asset management business in recent years, several opportunities exist. The equity market surge is unlikely to continue, providing true alpha generators openings for differentiation and thus flows. However, passive share gains will not stop anytime soon. Active ETFs will gain traction at the expense of the mutual fund structure, albeit slowly at first, since they preserve managers’ intellectual property while lowering costs for the end investor. Direct indexing will become much more influential because of a confluence of trends: zero commissions, fractional share trading, customization and a rising awareness of tax alpha. Mass market adoption will take off if the solution is presented in an elegant and simple way.
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5. Private markets will take a growing share of assets.

Although private market returns will likely be below historical levels in the coming decade, returns can be expected to be better than what investors can achieve in public markets. Still, private markets managers that are unable to generate returns consistently above peers will experience fee pressure. Private markets technology will be a dynamic space, as general and limited partners both have room to modernize. Individual investors will have more access to private markets investing, first as financial advisors increasingly access these investments through platforms such as iCapital, which streamlines buying. Second, a June 3 Department of Education information letter confirmed that 401(k) plans can add private equity as a component of target date funds.
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6. ESG considerations are moving to the forefront of investment decisions.

Investor interest in environmental, social and governance factors is growing. Research from MSCI, S&P Global and BlackRock indicate that ESG data and fund assets should grow 20% or more annually over the next five years. Most academic research has shown that incorporating ESG factors into the investment process does not harm returns and may reduce volatility, but it probably will be unclear for a long time whether ESG can sustainably help returns, especially as ESG is, at its heart, specific to the individual. Ratings among ESG data providers will continue to vary. Further, AI and the ability to draw conclusions from broad swaths of unstructured data will be critical in the development of ESG ratings.
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7. Private-sector solutions will help improve retirement outcomes.

Think “retirement crisis” and many problems come to mind that need to be addressed: Social Security faces funding challenges; defined benefit plans are on the decline and defined contribution plans are falling short in design and access; 90% of small employers do not offer a retirement plan; lower income workers withdraw funds from their retirement plans at a high rate. While some retirement issues require regulatory changes and federal leadership, companies are developing solutions that will help. Some fintech firms are building apps that provide education and planning resources for baby boomers, while others are making it cheaper for small businesses to offer 401(k) plans. Other companies are developing “retirement paycheck” solutions.
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William Blair released a report on Friday in which it analyzes seven trends that are playing out in the rapidly changing investment industry.

The report notes that in this dynamic environment, scale is becoming increasingly critical. Investor trust dominates investors’ choice of advisor. And technology is affecting everything from financial planning to the build-out of unified, personalized customer experiences.

As part of the report, the firm conducted a proprietary poll among 543 U.S. households with income of at least $75,000 and encompassing three age groups: 25 to 34, 35 to 44 and 45 to 54.

See the gallery for the seven themes William Blair considers important in considering what’s next.

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